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The Investor Case for Binding AgreementsBinding agreements can be influential in regions or countries with a high risk of serious worker rights violations and can be part of a systemic solution. In sectors and jurisdictions where they exist, investors can engage buyer companies on their importance and effectiveness.
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Here's why investors are asking companies to move toward binding agreements:
Regulatory Compliance: Companies and their investors have human rights responsibilities, and human rights due diligence (HRDD) is increasingly codified in emerging mHRDD regulations. The way certain mHRDD laws are formulated underscores long-standing skepticism about social auditing. For example, Article 52 of the CSDDD indicates that third-party verifiers must be experts in environmental and human rights matters, independent of the company and free of conflicts of interest;[1] binding agreements such as the Accord perform well on these measures, while most social auditing schemes do not.
Systemic Risk, Systemic Solutions: Addressing systemic risk, which is rooted in dynamics such as power imbalances, social norms and market structure, is ultimately a more sustainable approach to persistent human rights violations in global supply chains than social auditing has proven to be. In addressing issues such as occupational safety and health, sexual and gender-based violence, freedom of association and low wages, binding agreements seek to address sectoral and systemic problems. Similarly, global framework agreements (GFAs), signed between global unions and multinationals, cover operations throughout the company’s supply chain; they are “designed to address impacts at scale.”[2]
The Potential for Significant Material Risk Reduction for Companies: Key elements of binding agreements such as the Accord include safer factories, credible inspections by independent experts, systematic stakeholder engagement and the provision of robust remedy. These are all factors that could mitigate legal liability, reputational harm and financial and operational risks for buyer companies and investors. Binding agreements are also often marked by structures and relationships indicative of good governance. For example, legal accountability via a mandatory dispute resolution mechanism builds in peaceful resolution of grievances. Researchers point to the integration of worker representatives into decision-making – or “co-governance” – as contributing to the effectiveness of the Accord, the Lesotho Agreements and ACT.[3]
Lower Health and Safety Risks: Evidence is mounting that binding agreements have benefited workers through improvements that include stronger OSH outcomes and remedy for rights violations. According to one business publication, the Accord’s impact is “virtually undisputed, with measurable safety improvements completed – and fewer disasters – at factories throughout Bangladesh.”[4] Labour expert Mark Anner has pointed to “dramatic” gains in building safety for over 2.5 million workers,[5] and the Accord secretariat itself reported in 2023 that 1,212 factories under the agreement had a safety remediation rate above 90%.[6] Trade union representatives can accompany engineers during inspections, and the Accord has a trusted, confidential complaints mechanism for workers, who are afforded the right to refuse unsafe work under the terms of the agreement.[7]
Cost-Effectiveness: There are costs associated with becoming a signatory to binding agreements, just as there are costs associated with contracting companies to undertake social audits. But there is also some evidence that binding agreements could bring financial benefits to participating companies. A study of the implementation of the Dindigul Agreement in 2022, for instance, found that worker efficiency increased by 16%, and the attrition rate fell by 67% between 2021 and 2022.[8] Furthermore, there is arguably a negative financial case to be made for continuing to put money and other resources into discredited social auditing programs.
Increased Transparency: Binding agreements can provide more transparency, resulting in data that investors can use to gauge the outcome of supply chain due diligence. For example, the International Accord publishes lists of factories supplying signatories in countries with Accord programs, and the Accord website is searchable for inspection reports, remediation status and training status by factory.[9] These are also available in aggregate in quarterly reports.[10]
Strength in Numbers: Binding agreements provide common grievance mechanisms, leverage for signatory brands and the possibility of sharing costs across companies for access to high-quality, independent inspectors. Principle #19 of the UNGPs explicitly calls on companies to increase their leverage to prevent or mitigate negative human rights impacts; this is precisely what binding agreements seek to do.[11]
**This excerpt is from the Committee on Workers’ Capital Labour Rights Investor Network’s February 2025 report, Investor Guidance and Expectations: Supply Chain Due Diligence and Binding Agreements.
Systemic Risk, Systemic Solutions: Addressing systemic risk, which is rooted in dynamics such as power imbalances, social norms and market structure, is ultimately a more sustainable approach to persistent human rights violations in global supply chains than social auditing has proven to be. In addressing issues such as occupational safety and health, sexual and gender-based violence, freedom of association and low wages, binding agreements seek to address sectoral and systemic problems. Similarly, global framework agreements (GFAs), signed between global unions and multinationals, cover operations throughout the company’s supply chain; they are “designed to address impacts at scale.”[2]
The Potential for Significant Material Risk Reduction for Companies: Key elements of binding agreements such as the Accord include safer factories, credible inspections by independent experts, systematic stakeholder engagement and the provision of robust remedy. These are all factors that could mitigate legal liability, reputational harm and financial and operational risks for buyer companies and investors. Binding agreements are also often marked by structures and relationships indicative of good governance. For example, legal accountability via a mandatory dispute resolution mechanism builds in peaceful resolution of grievances. Researchers point to the integration of worker representatives into decision-making – or “co-governance” – as contributing to the effectiveness of the Accord, the Lesotho Agreements and ACT.[3]
Lower Health and Safety Risks: Evidence is mounting that binding agreements have benefited workers through improvements that include stronger OSH outcomes and remedy for rights violations. According to one business publication, the Accord’s impact is “virtually undisputed, with measurable safety improvements completed – and fewer disasters – at factories throughout Bangladesh.”[4] Labour expert Mark Anner has pointed to “dramatic” gains in building safety for over 2.5 million workers,[5] and the Accord secretariat itself reported in 2023 that 1,212 factories under the agreement had a safety remediation rate above 90%.[6] Trade union representatives can accompany engineers during inspections, and the Accord has a trusted, confidential complaints mechanism for workers, who are afforded the right to refuse unsafe work under the terms of the agreement.[7]
Cost-Effectiveness: There are costs associated with becoming a signatory to binding agreements, just as there are costs associated with contracting companies to undertake social audits. But there is also some evidence that binding agreements could bring financial benefits to participating companies. A study of the implementation of the Dindigul Agreement in 2022, for instance, found that worker efficiency increased by 16%, and the attrition rate fell by 67% between 2021 and 2022.[8] Furthermore, there is arguably a negative financial case to be made for continuing to put money and other resources into discredited social auditing programs.
Increased Transparency: Binding agreements can provide more transparency, resulting in data that investors can use to gauge the outcome of supply chain due diligence. For example, the International Accord publishes lists of factories supplying signatories in countries with Accord programs, and the Accord website is searchable for inspection reports, remediation status and training status by factory.[9] These are also available in aggregate in quarterly reports.[10]
Strength in Numbers: Binding agreements provide common grievance mechanisms, leverage for signatory brands and the possibility of sharing costs across companies for access to high-quality, independent inspectors. Principle #19 of the UNGPs explicitly calls on companies to increase their leverage to prevent or mitigate negative human rights impacts; this is precisely what binding agreements seek to do.[11]
**This excerpt is from the Committee on Workers’ Capital Labour Rights Investor Network’s February 2025 report, Investor Guidance and Expectations: Supply Chain Due Diligence and Binding Agreements.
[1] Official Journal of the European Union, Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859, July 5, 2024.
[2] Due Diligence Design, Global Company-Trade Union Agreements: A Potential Proxy for Regulatory Compliance and OECD Alignment for Investors, p. 16, https://www.industriallunion.org/sites/default/files/uploads/documents/2023/investor_brief_april_2023.pdf
[3] M. Anner and M. Fischer-Daly, Worker Voice: What It Is, What It Is Not, and Why It Matters, Center for Global Workers’ Rights, The Pennsylvania State University, prepared for the U.S. Department of Labor, December 2023, pp. 18, 24 and 76–78, https://ler.la.psu.edu/wpcontent/uploads/sites/4/2024/04/Penn-State-Worker-Voice-Report-Dec.-19-Final_amended_mfd_23March2024-2.pdf.
[4] R. Cernansky, “The Bangladesh Accord Is Set to Expire. Here’s What’s at Risk,” Vogue Business, July 29, 2021, https://www.voguebusiness.com/sustainability/the-bangladeshaccord-is-set-to-expire-heres-whats-at-risk.
[5] Anner, “Binding Power: The Sourcing Squeeze, Workers’ Rights, and Building Safety in Bangladesh since Rana Plaza,” Research Report, Penn State Center for Global Workers’ Rights, March 22, 2018, https://www.wiwiss.fu-berlin.de/forschung/Garments/Medien/2018-Anner-Research-Report-Binding-Power.pdf.
[6] International Accord, Quarterly Aggregate Report #3 2023, September 2023, https://internationalaccord.org/wpcontent/uploads/2024/07/Accord_QAR_202303_SEP_2.pdf.
[7] M. Anner and M. Fischer-Daly, Worker Voice: What It Is, What It Is Not, and Why It Matters, Center for Global Workers’ Rights, The Pennsylvania State University, prepared for the U.S. Department of Labor, December 2023, https://ler.la.psu.edu/wp-content/uploads/sites/4/2024/04/Penn-State-Worker-Voice-Report-Dec.-19-Final_amended_mfd_23March2024-2.pdf; S. Amita and M. Anner, “Case Study 1: Worker Voice and Enforceable Brand Agreements (EBAs),” in M. Anner and M. Fischer-Daly, Worker Voice: What It Is, What It Is Not, and Why It Matters, Center for Global Workers’ Rights, The Pennsylvania State University, prepared for the U.S. Department of Labor, December 2023, https://ler.la.psu.edu/wp-content/uploads/sites/4/2024/04/Penn-State-Worker-Voice-Report-Dec.-19-Final_amended_mfd_23March2024-2.pdf, p. 18. According to this study, the Accord covers over 1,600 ready-made-garment factories, with over 2 million workers, or 62.5% of the sector (p. 19).
[8] Asia Floor Wage Alliance, Tamil Nadu Textile and Common Labour Union, and Global Labour Justice, Dindigul Agreement: Year 1 Progress Report, 2023, https://laborrights.org/sites/default/files/publications/DINDIGUL%20AGREEMENT%20YEAR%201%20PROGRESS%20REPORT%202023_0.pdf.
[9] See International Accord, “Provisions That Ensure Transparency and Accountability in the Signatories’ Supply Chains,” https://internationalaccord.org/about-us/transparency/, and International Accord, “Status of Factories in Bangladesh,” https://internationalaccord.org/factories/#factory-search.
[10] Another example is the reports on the first and second years of the Dindigul Agreement. These provide data on, for example, the number of grievances resolved by type and length of time to resolution, the number of workers and managers trained in labour rights, and productivity gains and reduction in attrition due to the program.
[11] To cite SOMO once more: “The Accord affords an unprecedented level of ‘collective leverage’ to its 200 brands” (J. Wilde-Ramsing, “Amidst the Trend Towards Mandatory Due Diligence, the Bangladesh Accord Model Should Not Be Abandoned,” SOMO, April 20, 2021, https://www.somo.nl/amidst-the-trend-towards-mandatory-due-diligence-thebangladesh-accord-model-should-not-be-abandoned/).
[2] Due Diligence Design, Global Company-Trade Union Agreements: A Potential Proxy for Regulatory Compliance and OECD Alignment for Investors, p. 16, https://www.industriallunion.org/sites/default/files/uploads/documents/2023/investor_brief_april_2023.pdf
[3] M. Anner and M. Fischer-Daly, Worker Voice: What It Is, What It Is Not, and Why It Matters, Center for Global Workers’ Rights, The Pennsylvania State University, prepared for the U.S. Department of Labor, December 2023, pp. 18, 24 and 76–78, https://ler.la.psu.edu/wpcontent/uploads/sites/4/2024/04/Penn-State-Worker-Voice-Report-Dec.-19-Final_amended_mfd_23March2024-2.pdf.
[4] R. Cernansky, “The Bangladesh Accord Is Set to Expire. Here’s What’s at Risk,” Vogue Business, July 29, 2021, https://www.voguebusiness.com/sustainability/the-bangladeshaccord-is-set-to-expire-heres-whats-at-risk.
[5] Anner, “Binding Power: The Sourcing Squeeze, Workers’ Rights, and Building Safety in Bangladesh since Rana Plaza,” Research Report, Penn State Center for Global Workers’ Rights, March 22, 2018, https://www.wiwiss.fu-berlin.de/forschung/Garments/Medien/2018-Anner-Research-Report-Binding-Power.pdf.
[6] International Accord, Quarterly Aggregate Report #3 2023, September 2023, https://internationalaccord.org/wpcontent/uploads/2024/07/Accord_QAR_202303_SEP_2.pdf.
[7] M. Anner and M. Fischer-Daly, Worker Voice: What It Is, What It Is Not, and Why It Matters, Center for Global Workers’ Rights, The Pennsylvania State University, prepared for the U.S. Department of Labor, December 2023, https://ler.la.psu.edu/wp-content/uploads/sites/4/2024/04/Penn-State-Worker-Voice-Report-Dec.-19-Final_amended_mfd_23March2024-2.pdf; S. Amita and M. Anner, “Case Study 1: Worker Voice and Enforceable Brand Agreements (EBAs),” in M. Anner and M. Fischer-Daly, Worker Voice: What It Is, What It Is Not, and Why It Matters, Center for Global Workers’ Rights, The Pennsylvania State University, prepared for the U.S. Department of Labor, December 2023, https://ler.la.psu.edu/wp-content/uploads/sites/4/2024/04/Penn-State-Worker-Voice-Report-Dec.-19-Final_amended_mfd_23March2024-2.pdf, p. 18. According to this study, the Accord covers over 1,600 ready-made-garment factories, with over 2 million workers, or 62.5% of the sector (p. 19).
[8] Asia Floor Wage Alliance, Tamil Nadu Textile and Common Labour Union, and Global Labour Justice, Dindigul Agreement: Year 1 Progress Report, 2023, https://laborrights.org/sites/default/files/publications/DINDIGUL%20AGREEMENT%20YEAR%201%20PROGRESS%20REPORT%202023_0.pdf.
[9] See International Accord, “Provisions That Ensure Transparency and Accountability in the Signatories’ Supply Chains,” https://internationalaccord.org/about-us/transparency/, and International Accord, “Status of Factories in Bangladesh,” https://internationalaccord.org/factories/#factory-search.
[10] Another example is the reports on the first and second years of the Dindigul Agreement. These provide data on, for example, the number of grievances resolved by type and length of time to resolution, the number of workers and managers trained in labour rights, and productivity gains and reduction in attrition due to the program.
[11] To cite SOMO once more: “The Accord affords an unprecedented level of ‘collective leverage’ to its 200 brands” (J. Wilde-Ramsing, “Amidst the Trend Towards Mandatory Due Diligence, the Bangladesh Accord Model Should Not Be Abandoned,” SOMO, April 20, 2021, https://www.somo.nl/amidst-the-trend-towards-mandatory-due-diligence-thebangladesh-accord-model-should-not-be-abandoned/).
